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“Aged Debt” Not Exchangeable for Unrestricted Securities

“Aged Debt” Not Exchangeable for Unrestricted Securities

This came from our friends over at Sonfield & Sonfield:

We are informed that some folks believe so-called “aged debt” is exchangeable for common stock or other securities that endure a holding period beginning on the date of creation of the debt.  The folks who unfortunately believe this untruth rely on Section 3(a)(9) that exempts transactions: “[E]xcept with respect to a security exchanged in a case under title 11 of the United States Code, any security exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

Rule 144(d)(3)(ii) provides that if securities are acquired from an issuer solely in exchange for other securities of the same issuer, the newly acquired securities may tack onto the holding period and shall be deemed to have been acquired at the same time as the securities surrendered for conversion, even if the securities surrendered were not convertible or exchangeable by their terms.  Rule 144 also authorizes the issuer and investor to agree to conversion terms and still benefit from tacking the holding period of a promissory note, or other security that does not have a conversion feature as originally written.

The exemption from registration makes no mention of “debt.”  The exemption applies to exchanges only of securities.

However, the Securities Act provides an exemption from the registration requirements for the offer and sale of securities by issuers in exchange for debt, if:  “The terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval.”

SEC Staff Bulletin 3 provides that the resale of securities issued in Section 3(a)(10) transactions may be had without regard to Rule 144 if the seller is not an affiliate of the issuer either before or after the Section 3(a)(10) transaction. That is, if the seller is not an affiliate of the issuer, securities issued in a 3(a)(10) transaction are unrestricted and may be immediately sold in the public markets.


© 2018 by Sonfield & Sonfield, all rights reserved.

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Posted by on January 17, 2018 in Business, Public markets

 

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An update on the JOBS Act

As you can guess,we have been keeping up with what the S.E.C. has been doing when it comes to the Jumpstart Our Business Startups Act (“JOBS Act“).  So far, it has been the S.E.C. has been very cautious but they are fast coming to the time when they need to weigh in on the changes to the laws in place.  Here is their recent discussion on the subject:

Here is what Fulbright & Jaworski L.L.P. has said about it:

If you haven’t been following what PPM Logix has been doing, you should.  They have some great discussion on their BLOG and they have introduced a new website: Reg D List – Funding for Private Placements.  The blog on the website is a great read as well.  Take a look at the website and if you need a reference / introduction in, just ask us.


© 2012 by Rhodes Holdings LLC, all rights reserved.

 
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Posted by on September 3, 2012 in BLOG, Business, Entrepenuers, Public markets

 

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